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TESTIMONY OF
ARTHUR LEVITT, CHAIRMAN
U.S. SECURITIES AND EXCHANGE COMMISSION
CONCERNING THE COMMISSION'S AUTHORIZATION
REQUEST FOR FISCAL YEARS 1998 AND 1999
BEFORE THE SUBCOMMITTEE ON
FINANCE AND HAZARDOUS MATERIALS
COMMITTEE ON COMMERCE
U.S. HOUSE OF REPRESENTATIVES
March 6, 1997
Chairman Oxley and Members of the Subcommittee:
The Securities and Exchange Commission (SEC or Commission)
appreciates this opportunity to testify regarding the
Commission's authorization for fiscal years 1998 and 1999.
The Commission seeks authorization for appropriations of
$320 million in fiscal year 1998 and $342.7 million in fiscal
year 1999. These requests represent the Commission's best
estimate of the minimum resources we will need in each year to
maintain effective regulation of the U.S. securities markets.
This level of appropriation should permit the Commission in
1998 and 1999 to address foreseeable issues that will arise from
the securities markets' current rate of exceptionally rapid
growth. These estimates also reflect the Commission's efforts to
support Congressional interest in balancing the federal budget.
The U.S. securities markets are widely regarded as the
deepest, most liquid, and fairest markets in the world. These
markets experienced considerable growth throughout the 1980s, and
since 1991 have continued this growth with the longest and most
vigorous bull market in history, driven, in part, by investor
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confidence in their integrity. In the past 12 months alone, the
U.S. securities markets have experienced exponential growth:
* the Dow Jones Industrial Average has broken the 5,000,
6,000 and 7,000 point levels;
* the New York Stock Exchange and the Nasdaq Stock Market
have each seen stock trading volume hit all-time highs;
and
* assets in mutual funds have reached record levels of
$3.5 trillion -- a figure that surpasses the more than
$2.6 trillion Americans have on deposit at commercial
banks -- and continue to grow monthly.
This growth builds on 1996, a year when:
* total dollar volume traded on the exchanges and the
Nasdaq Stock Market exceeded 1995 volume by 31 percent;
* registered public offerings grew to $1.045 trillion, an
increase of 36 percent from 1995 offerings; and
* initial public offerings rose to $50 billion, up from
$30 billion in 1995, a 67 percent increase.
The ever increasing participation of small investors in the
U.S. securities markets fuels some of this growth. Many of these
investors now choose to invest their funds for retirement in the
securities markets, often through mutual funds. The number of
first-time small investors participating in the U.S. securities
markets grows daily. Small investor participation will
accelerate even more rapidly if Congress acts on proposals to
privatize a portion of the Social Security program.
The Commission always has fulfilled its mission to protect
investors and maintain fair and orderly markets with modest staff
and limited resources. A review of SEC appropriations for 1990-
1996 shows that our resources increased at a fraction of the rate
of increase of participants and assets invested in the securities
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markets.-[1]- At the same time, the Commission has
addressed many significant issues and events, such as educating
new investors who are pouring money into the securities markets,
regulating continuing innovations in derivative products and
activities, and the financial collapse of Orange County.
The incredible growth in the U.S. securities markets
described above shows no sign of slowing. We have concluded that
we can continue to fulfill our statutory mandate in 1998 at a
level close to that contained in the 1997 authorization bill. By
1999, however, the anticipated size of the securities markets, as
well as the challenges posed by, among other things, evolving
uses of technology in the securities markets, increased
globalization of the securities markets, and the continuing
creation of new financial instruments, likely will strain the
Commission's ability to do our job. Therefore, we believe that
by 1999 we will require additional funding flexibility to ensure
that we can respond to these new issues as well as to meet
mandatory cost increases outlined in the President's budget.
---------FOOTNOTES----------
-[1]- For example, since 1995, the Commission has had
flat staffing. During the same period, the total
trading volume on the New York and American Stock
Exchanges and the Nasdaq Stock Market increased
from 207 billion to 264 billion shares (a 27.5
percent increase); the value of public offerings
increased from $768 billion to $1.045 trillion (a
36 percent increase); the value of initial public
offerings increased from $30 billion to $50
billion (a 67 percent increase); and investment
company assets under management increased from
$3.062 trillion to $3.794 trillion (a 24 percent
increase).
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In the past year, the Commission has undertaken a number of
initiatives focused on protecting investors and promoting the
integrity of the securities markets. Some of these initiatives
will reduce regulatory burdens in light of the growth and
development of the capital markets and the evolving technology
available to market participants. These initiatives should
reduce the costs of participating in the securities markets for
investors and other market participants. Reduced costs, in turn,
should enhance the markets' depth and liquidity by encouraging
more capital formation and investment. Other initiatives address
specifically the need to protect market participants, large and
small. Some of our most significant accomplishments in recent
years include:
* revising the order handling rules to assure markets
that are fair and open to investors and that are based
on competition;
* upgrading the SEC World Wide Web site, which now has an
average of 2.5 million "hits" per week (which
translates to approximately 250,000 users per day) and
downloads an average of approximately 24 million pages
of financial information per week -- making it one of
the most active federal Web sites;
* publishing two interpretive releases to facilitate
electronic commerce and to maintain at the frontier the
Commission's positions regarding electronic media under
the federal securities laws;
* proposing requirements that issuers use plain English
in prospectuses and releasing a plain English writing
guide for issuers;
* proposing rules to simplify mutual fund prospectuses
for investors and investment companies and rules to
allow a mutual fund to provide a "Fund Profile"
summarizing concisely, in a standardized form, key
information about the fund;
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* easing the limitations on sales and resale of
restricted stock and sales of unregistered stock to
reduce the cost of capital formation; and
* continuing vigorous enforcement of the federal
securities laws, including work with the FBI and the
Justice Department to bring criminal charges against
those who prey upon American investors.
The remainder of this testimony describes these
accomplishments in greater detail. It also outlines additional
issues the Commission will need to address in the next two years
to ensure that the U.S. securities markets remain the safest for
investors and the deepest, most liquid, and fairest markets in
the world.
Reducing Regulatory Burdens
The Commission understands the current government-wide
budgetary constraints. We regulate the nation's securities
markets with a modest staff and limited resources, operating in
partnership with the private sector rather than through pervasive
regulation. The Commission staff is small compared to the scope
of the agency's mission and the size of the nation's
markets.-[2]- As a general principle, the SEC supports
---------FOOTNOTES----------
-[2]- The SEC has only 2,726 employees across the
country -- to oversee dynamic markets that have
grown to be worth more than $10 trillion. The
bank regulators, on the other hand, operate under
a direct, comprehensive regulatory system for
banking activities and (notwithstanding recent
personnel cutbacks) maintain staffs that are, in
the aggregate, much larger than the SEC's staff.
The FDIC, for example, expected to have staff of
approximately 8,700 by the end of 1996 to carry
out the agency's function as insurer and backup
(continued...)
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market-driven regulation -- under which the Commission takes
responsibility for core regulatory areas, while much of the
direct, day-to-day regulation of securities market participants
is done by firms themselves and by private membership
organizations (self-regulatory organizations or SROs), under SEC
oversight. In this context, the Commission has worked with the
securities industry to provide cost-effective regulation in
partnership with the private sector. For example:
* The Derivatives Policy Group (DPG), established by the
six broker-dealers with the largest derivatives
affiliates, developed a framework for voluntary
oversight of the over-the-counter derivatives
activities of unregulated affiliates of securities
firms. The DPG recommended improved management
controls, enhanced quantitative reporting to the SEC
and the CFTC, and guidelines designed to foster
integrity and responsible conduct with respect to
derivatives end-users. The DPG members provide
information to the Commission, which we integrate into
our financial responsibility and risk assessment
programs.
* A task force of SRO and broker-dealer representatives,
working with the SEC, developed continuing education
recommendations for the broker-dealer community. The
SROs adopted uniform continuing education requirements,
approved by the SEC, which, for the first time, require
each securities firm to prepare training programs
addressing the characteristics, risks, suitability, and
sales practice considerations of the securities
products the firm offers.
The Commission continuously reevaluates regulatory burdens
---------FOOTNOTES----------
-[2]-(...continued)
regulator of approximately 11,400 insured banks
and thrifts. See Barbara A. Rehm, FDIC Cuts
Budget by 8%; Sets Thrift Insurance Rates, Am.
Banker, Dec. 12, 1996, at 2. The Commission does
not wish to suggest that one scheme of regulation
is better than the other rather that each model
has different strengths, tailored to the
requirements of the relevant industry.
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to determine whether the effectiveness of SEC regulations
justifies their burden. A number of Commission programs recently
were the subject of such reevaluations, the results of which are
described below:
Easing capital formation. The Commission regularly seeks to
simplify the regulatory structure for registration and reporting
by public companies. Over the past two years, two panels have
worked to advance these goals. The Task Force on Disclosure
Simplification examined every rule related to corporation finance
and, in March 1996, recommended eliminating or modifying a
quarter of the rules and half of the forms. To date, the
Commission has eliminated 44 rules and 4 forms, and plans to
eliminate more. The Task Force also proposed a number of other
initiatives (which the Commission is beginning to consider) to
further increase access to capital markets. These include:
* adding greater flexibility to the offering process to
assist issuers with timing and pricing;
* liberalizing the rules restricting cross-border tender
offers; and
* expanding the small business exemption for selling
securities to employees.
The Advisory Committee on Capital Formation and Regulatory
Processes had a broader mandate to reexamine the entire
regulatory process for securities offerings. In July 1996, the
Committee proposed a fundamental shift in our regulatory scheme
from registering transactions to registering companies. The
goals of a company registration system would be to streamline
capital formation while enhancing investor protection. The
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Advisory Committee believes the system would eliminate
unnecessary complexities in our regulatory system and encourage
more registered offerings with earlier and better access to
information. The Commission has requested comments on the
company registration model as well as on other ways to modernize
regulation of the offering process.
The Commission recognizes that small business is the
lifeblood of the American economy. Thus, the Commission has
adopted a number of initiatives designed to facilitate small
business access to capital and to ease regulatory burdens on
small business. These include:
* creating a new exemption from registration requirements
for limited offerings of up to $5 million that are
exempt from qualification under California law;
* doubling the asset threshold that subjects companies to
registration under the Securities Exchange Act of 1934
(Exchange Act) from $5 million to $10 million, with the
effect of reducing the number of small businesses
subject to Exchange Act reporting requirements;
* allowing limited resales of restricted stock (often
held by investors in small businesses) after one year
and unrestricted sales after two years;
* appointing a special ombudsman to assist small
businesses and to serve as the liaison and agency
spokesman for small business concerns; and
* upgrading the Commission's Web site to include a page
addressing issues of specific interest to small
businesses.
Market regulation. The Commission recognizes that
regulation often imposes costs on securities markets. Therefore,
the Commission is vigilant in trying to reduce those costs
whenever it is consistent with the protection of investors.
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Recent amendments to the net capital rule demonstrate the
Commission's efforts to make regulation more efficient and
economic. The Commission recently approved the use of option
pricing models to calculate required net capital for both listed
options and the related positions that hedge those options. The
Commission adopted this amendment after determining that use of
the model would more accurately reflect the risk inherent in a
firm's options positions and in many cases would reduce a firm's
capital charges. The Commission is considering additional
rational approaches to the net capital rule, such as using
value-at-risk models, in an effort to further amend the rule so
that it more effectively recognizes, and can be adjusted to take
into consideration, each firm's financial exposures.
Another regulatory initiative under consideration would
create a new class of limited purpose broker-dealers to
facilitate derivatives transactions. Under current regulations,
securities firms conduct their derivatives activities in separate
affiliates, many of which are outside of the United States and
therefore beyond SEC jurisdiction, depending on the nature of the
derivatives activity. A new class of "limited purpose"
broker-dealers would be subject to modified capital, margin, and
other regulatory requirements tailored to the derivatives
business, which is intended to encourage a U.S. securities firm
to conduct all its counterparty activities in various derivatives
products in a single U.S. affiliate. By consolidating and
repatriating the firms derivatives positions in these "limited
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purpose" broker-dealers, the Commission anticipates significantly
improving oversight of the derivatives market.
In response to the National Securities Markets Improvement
Act of 1996 (NSMIA), the Commission has rededicated itself to
considering how its rules affect competition, efficiency, and
capital formation as part of its public interest determination.
Accordingly, the Commission intends to focus increased attention
on these issues when it considers rulemaking initiatives. In
addition, the Commission measures the benefits of proposed rules
against possible anti-competitive effects, as required by the
Exchange Act. However, we believe more could be done in this
area. Over the next several years, the Commission intends to
increase the number of economists on its staff in order to
conduct even more comprehensive economic analyses of the impact
of Commission rulemaking on financial markets and their
participants.
Examinations. In 1995, the Commission created the Office of
Compliance Inspections and Examinations (OCIE) to improve the
Commission's efficiency and effectiveness in examining regulated
entities. That year, OCIE, the SROs and state regulators
developed a framework for better examination coordination under a
Memorandum of Understanding (MOU).-[3]- As a result, about
85 percent of the broker-dealers who requested coordinated SRO
examinations in 1996 received them, and we hope to reach close to
---------FOOTNOTES----------
-[3]- Many of the principles in the MOU were codified in
NSMIA.
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100 percent this year. OCIE, the SROs, and the state regulators
also have initiated a series of summits at which they work
together to improve examination coordination. We hope to build
on this beginning and coordinate efforts even more effectively in
the future.
Other steps the Commission has taken to make its examination
program more efficient and to address the increasing disparity
between the size of the securities industry and available
resources include:
* an increasingly "risk-based" examination program
focusing on registrants whose activities or practices
increase customer risk or the likelihood of compliance
problems and areas within specific firms that pose the
greatest risks; and
* examinations focused on specific sectors of the
securities industry, such as transfer agents, or on
specific industry practices such as sales practices
among broker-dealers and financial planning activities
of investment advisers.
Next month, as required under NSMIA, the states will become
the primary regulators for small investment advisers. As a
result, the Commission will refocus examination resources on the
investment advisers with the greatest impact on the national
markets -- those that manage 98 percent of the assets under
management in the United States. Pursuant to NSMIA, our
obligations regarding small advisers will continue, however. We
will provide training, technical assistance, and other support to
state regulators, and will conduct joint examinations, classroom
training, joint sweep examinations, and other similar operations.
To ensure adequate investor protection, our examination
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program must keep pace with the phenomenal growth in the
securities industry. For example, additional resources are
necessary for the Commission to increase the frequency of
inspections of transfer agents and clearing agents, some of which
handle securities issued to millions of investors, and to review
the internal controls of large securities firms. Similarly, we
need to devote more resources to monitoring supervision in firms
with rapidly increasing networks of broker-dealer branch offices,
many of which are one-person branches operated by independent
contractors. Finally, funding is needed to develop advanced
technology systems for tracking examinations, selecting
registrants for review, developing computerized examination and
research tools, and coordinating with other national and state
regulatory authorities and organizations.
Investor Protection
The Commission's foremost mission is the protection of
investors. The Commission pursues this mission through vigorous
law enforcement, regulatory initiatives, and programs to inform
and educate investors.
Law enforcement. Over the past few years the Commission has
made a substantial effort to address market-wide problems in the
securities industry and widespread violations of the securities
laws. For example, the Commission recently participated in a
sting operation with the FBI and the National Association of
Securities Dealers (NASD) that resulted in criminal charges
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against 46 stock promoters, company officials, and current or
former brokers for illegal kickbacks to brokers for sales of
over-the-counter and Nasdaq stocks. The Commission also brought
22 administrative proceedings against 29 of the individuals
criminally charged.
In January 1996, the Commission brought enforcement actions
against Orange County, the Orange County Flood Control District,
two county officials, and the county board of supervisors in
connection with the fraudulent offer and sale of over $2.1
billion in municipal securities. In November 1996, the
Commission also brought an enforcement action against CS First
Boston Corporation and two of its investment bankers in
connection with their role in underwriting one of the fraudulent
bond offerings. The Commission continues its enforcement
proceedings brought in the wake of Orange County's financial
collapse in 1994.
In addition, last summer the Commission concluded an 18-
month investigation of the Nasdaq Stock Market, in which the
Commission found that market makers coordinated their quotes so
that investors paid too much and received too little when they
bought and sold stock on the Nasdaq Stock Market. The Commission
also found that the NASD failed to ensure the accuracy and
fairness of the quotation and transaction information, failed to
apply certain rules to its members, and selectively enforced
rules against others. In August 1996, the Commission announced a
far-reaching settlement with the NASD, in which the NASD
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committed to spend $100 million over five years to improve its
surveillance, examination, and enforcement of the handling of
customer orders. The NASD also agreed to make important
structural changes to ensure that it represents adequately the
interests of investors and responds effectively to indications of
anti-competitive practices or other wrongdoing.
In addition to the significant resources devoted to these
major cases, the Commission maintains its vigorous enforcement
program against individuals and firms that violate the securities
laws. Over the past two years, the Commission brought over 900
enforcement actions against over 2,000 defendants and
respondents. These cases involved domestic and international
insider trading, Ponzi schemes, misleading disclosure, kickbacks
or conflicts of interest relating to municipal securities
offerings, broker-dealer sales practice abuses, and unregistered
securities offerings over the Internet. For example:
* In the Matter of Bennett Funding Group, Inc. Bennett
Funding allegedly raised over $570 million through the
sale of purported equipment leases; the proceeds of
sale were diverted to the company's former chief
financial officer (CFO) and persons connected with him
or the other defendants; the former CFO consented to a
preliminary injunction and asset freeze in these
pending proceedings.
* In the Matter of Kent Ahrens. The Commission initiated
an injunctive action and an administrative proceeding
against the senior trader at a registered investment
adviser who engaged in unauthorized trading that
resulted in losses of $137 million to the Common Fund,
which manages endowments for 1,400 U.S. colleges and
universities.
* In the Matter of Systems of Excellence. The Commission
obtained a temporary restraining order and asset freeze
and suspended the trading of Systems of Excellence, a
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public company purportedly in the business of video
teleconferencing, to stop an on-going manipulation
involving false press releases and fraudulent Internet
postings. The Commission's asset freeze preserved
millions of dollars for defrauded investors. Charles
D. Huttoe, the former Chairman and CEO of Systems of
Excellence, subsequently pled guilty to criminal
charges of securities fraud and money laundering.
As we look ahead, we know that the Commission must dedicate
additional resources to policing fraud on the Internet. The
ever-increasing level of securities activities occurring over the
Internet will force the Commission to expand its activities in
order to keep up.
Broker sales practices. The Commission continues its
campaign to improve broker sales practices. In 1996, the
Commission, NASD, New York Stock Exchange, and state regulators
joined in an examination sweep focused on these practices. The
sweep identified a number of problems in broker sales practices,
including excessive trading, unauthorized trading, improper
registration of representatives, cold-calling violations and
deficiencies. Furthermore, one-third of the examinations
conducted in the sweep found varying degrees of supervisory
problems. As a result of these findings, state and federal
regulators and the SROs initiated disciplinary actions and, with
the industry, increased their emphasis on supervisory procedures
and obligations.
In response to another industry practice, the Commission is
currently examining the soft dollar arrangements of mutual funds,
investment advisers, and brokerage firms. The Commission also
has announced plans to examine possible sales abuses by insurance
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companies selling variable annuities.
Order handling rules. In the context of the enforcement
action against the NASD, the Commission identified a need for
rules to further assure that markets are open and fair to
investors, and are based on competition, not coordination. The
order handling rules, which went into effect in January, are
intended to let competition foster increased fairness, efficiency
and best execution:
* by requiring that dealer quotes reflect investor limit
orders;
* by requiring public display of "hidden" dealer
interests; and
* by requiring public display of trading activity in
significant proprietary systems and requiring that the
national best bid and offer reflect that trading
activity.
The rules permit investors to compete directly with dealers and
with other investors on the basis of price, which we believe will
allow the market more fully to reflect investor interest. In the
year ahead, the Commission will work with the securities firms
and the NASD to implement these rules to ensure that these market
reforms benefit investors.
Improvements in disclosure. Adequate and accurate
disclosure of financial and other material information regarding
issuers and securities is essential to investor protection. The
Commission recently initiated and adopted several programs to
improve disclosures. Last year, the Commission launched a pilot
program that offers expedited review of required securities
reports to companies that write their prospectuses in plain
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English. This program has drawn universal praise from its
participants (which include major corporations such as GE
Capital, Bell Atlantic, and ITT). This year, the Commission
proposed rules to require the use of plain English in
prospectuses and published a draft handbook to assist issuers in
preparing reports in plain English. Last month, the Commission
adopted new rules requiring companies to disclose specific
information about their derivative activities and related market
risks. These rules give investors tangible, quantifiable
information about these instruments and their potential
consequences for a company's financial position.
Mutual fund disclosures. The Commission also targeted
investment company disclosures for improvement. Last week, the
Commission proposed three new initiatives representing the most
significant change to mutual fund disclosure the Commission has
undertaken in the last 14 years.
* The Commission proposed to overhaul the prospectus
requirements and registration form for mutual funds.
The proposal focuses prospectus disclosure on essential
information about a particular fund that would assist
an investor in reaching an investment decision, while
minimizing disclosure about technical, legal, and
operational matters that generally are applicable to
all funds. In conjunction with the Commission's plain
English initiative, described above, this proposal is
designed to make fund prospectuses easier for investors
to use and easier for funds to prepare.
* As the culmination of a two-year experiment, the
Commission proposed to permit a fund to provide
investors with a short (three to four page) disclosure
document called a "profile." The profile would
summarize key fund information (including investment
strategies, risks, fees, and past performance) in a
concise, standardized format that is easy to read and
helps investors compare different funds.
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* The Commission proposed a new rule that would require a
fund's name to better reflect its investment strategy.
The rule is intended to provide an investor greater
assurance that a fund's investments will be consistent
with its name.
Investor education. Investor protection requires investor
education. The Commission emphasizes the importance of investor
education through outreach programs that assist investors and
small businesses to understand the capital markets and the
securities industry. In addition to the plain English
initiatives described above, recent Commission initiatives
include:
* creating a toll-free telephone Investor Information
Line;
* conducting town meetings across the country, in which
the Commission answers questions and provides helpful
advice to investors; and
* creating a series of easy-to-read brochures about
choosing brokers or mutual funds.
Technology
Recent advances in communications technology have increased
access to the securities markets for investors and businesses.
Every advance brings new challenges in applying the securities
laws. For example, the Internet already has changed the face of
brokerage and investment management, through on-line trading and
other innovations, and may also redefine disclosure and what
constitutes an exchange. In the past two years, we have
published interpretive releases, rules, and no-action letters to
provide guidance on the use of electronic media under the federal
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securities laws. The Commission is excited about the greater
access to capital markets that technology can bring, but we are
concerned that the Commission will not have adequate funds in the
coming years to meet the corresponding challenges that
technological innovations will pose. We are racing to keep up
with new developments while maintaining our existing technology.
As noted above, the SEC's home page has become one of the most
popular government sites on the World Wide Web, and we evaluate
constantly how to facilitate access to the extensive information
available there. In addition, our EDGAR database of corporate
information, while on the cutting edge of technology 10 years
ago, will begin a major overhaul by the end of this year.
Promoting the International Competitiveness of U.S. Markets
The depth and integrity of the U.S. securities markets have
made our markets preeminent in the world and, as a result, have
attracted increasing numbers of foreign issuers and investors.
This continuing internationalization benefits U.S. markets and
investors alike. It promotes the leading position of the U.S.
markets and gives U.S. investors a broader array of investment
choices within the strong disclosure and investor protection
framework of the U.S. markets. The Commission has sought to
promote internationalization of the U.S. markets, while
safeguarding their transparency and fairness. Initiatives
include:
* streamlining registration, reporting, and
reconciliation requirements for foreign companies;
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* permitting, in cross-border offerings, the use of
certain international accounting standards in portions
of financial statements filed with the Commission; and
* streamlining financial statement disclosure
requirements for both foreign and domestic issuers with
respect to acquired foreign businesses.
In addition, the Commission, both directly and indirectly,
through the International Organization of Securities Commissions
(IOSCO), continues to participate in the efforts of the
International Accounting Standards Committee (IASC) to develop a
core set of high-quality, comprehensive, international accounting
standards. The development of a single set of standards that
can be used in securities markets around the world would allow
companies more readily to cross borders to raise capital in
markets that offer favorable financing conditions. The IASC has
set a goal of completing these standards by March 1998. The
Commission will report to Congress on progress in the development
of international standards in October 1997, as required by NSMIA.
Due in part to the Commission's internationalization
efforts, foreign issuers increasingly turn to the U.S. markets to
raise capital. Foreign issuer offerings of securities in U.S.
markets have almost quintupled, from about $30 billion in 1990 to
approximately $144 billion in 1996. Since January 1, 1996, over
160 foreign companies from 35 countries have entered our
reporting system, including companies from Chile, China, France,
Indonesia, Italy, Russia, and the United Kingdom. As of December
31, 1996, 843 foreign reporting companies representing 47
countries were registered with the Commission.
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With increased international trading comes a need for better
cooperation and communication regarding the regulatory and
enforcement issues that may arise between the U.S. and foreign
regulators. The Commission has entered into 29 arrangements with
foreign authorities for cooperation. By providing for
cooperation among regulatory agencies, these arrangements
facilitate enforcement investigations into cross-border
securities transactions.-[4]- Similarly, in the regulatory
area, the Commission works with its foreign counterparts to
address concerns relating to global systemic risk. On a
multilateral basis, the Commission has taken a leading role in
international efforts to assure high quality market standards and
coordinate enforcement activities through organizations such as
IOSCO and the Council of Securities Regulators of the Americas.
Conclusion
The Commission plays a vital role in protecting U.S.
securities markets from fraud, manipulation and other practices
that continually threaten to undermine the integrity of our
markets. To maintain current operations, respond to market
---------FOOTNOTES----------
-[4]- In 1996, the Commission made 230 requests for
enforcement assistance to foreign governments and
received 340 requests for assistance from foreign
authorities, pursuant to these cooperation
arrangements. The success of the Commission's
international enforcement program has been
recognized; our system has served as the model for
other domestic legislation and for securities
regulators around the world.
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growth, and develop initiatives for emerging issues, particularly
in the areas of technology and globalization, the Commission
needs adequate funding. Therefore, the Commission urges adoption
of this authorization request, which provides the framework for
accomplishing the Commission's critical responsibilities.
In presenting today's authorization request, the Commission
has been mindful that government resources are strained. The
Commission recognizes, however, that important work lies ahead of
us. Among the challenges we will face over the next two years
are:
* issues posed by the increasing number of small
investors who invest their retirement savings in mutual
funds through retirement plans;
* responses to the special concerns raised by the
increasing use of derivatives and other complex
financial products; and
* maintaining vigilant oversight of markets as those
markets grow increasingly complex and volatile.
The Commission would like to take this opportunity to thank
this Committee and its staff for their hard work in forging a
consensus to solve the Commission's funding problems. As a
result of Congress' bipartisan efforts, NSMIA will move us to a
more stable funding structure and allow us to plan better for our
future needs.
In order to take on new challenges, and to continue the
Commission's excellent record of effective investor protection,
law enforcement, and market oversight, the Commission will need
funding at least at the levels requested today. We therefore
urge the Subcommittee to adopt our authorization request in order
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to allow the SEC to promote capital formation and maintain
effective oversight of the vitally important U.S. markets.